Under-invoicing rampant on imports from UAE

Under-invoicing has been witnessed on the imports from UAE with price disparities in items including mineral and chemicals, pharmaceuticals, dyes, cosmetics, others, plastics and articles, rubber and articles, paper and paper board, textile (mainly cotton and yarn), ceramics, iron and steel/aluminium, lead, machinery and mechanical appliances, electrical machinery/equipment and vehicles” parts.

An analysis of import value discrepancies in Pakistan”s imports from the UAE conducted by Pakistan Business Council (PBC) revealed that major discrepancy in prices has been witnessed on imports from UAE in various sectors. The country loses about Rs 150 billion each year to underinvoicing in imported goods. This is part of the Rs 600 billion lost each year due to tax evasion (smuggling), and misuse of concessionary duties.

Even though, smuggling and leakages under Afghan Transit Trade (ATT) are frequently cited as major concerns by industry, under-invoiced and misdeclared imports, especially from UAE are considered to be worse since they have an advantage of formal customs clearance documents that allows them to feed into the formal economy. In addition to the industry”s concerns, the government of Pakistan loses revenue owing to reduced duty, sales tax and income tax collections at the import stage.

The study has examined trade between Pakistan and the UAE from 2005 to 2012 and looks at import prices when Pakistan imports from the UAE as opposed to when the same product is imported from other countries. Large differentials between UAE and world prices from one year to another without any plausible explanation or a subsequent increase in demand would appear to indicate discrepancy in valuations at customs. Such discrepancy in prices are seen in sectors such as machinery and electronic equipment, dyes and other chemical agents, plastics, products of base metals such as iron and steel, and parts of vehicles.

No direct correlation between prices and market share was found along products that showed differentials between UAE and world prices. Many products reported UAE”s prices to be vastly lower than world prices but this did not form a greater demand for UAE”s products. This is likely due to misdeclaration of imports.

However, inferences from this study suggest that the impact of such invoice discrepancies in imports from the UAE are in many cases difficult to ascertain and may even be exaggerated. A major chunk of imports from the UAE during the period under review belonged to petroleum fuel and oils (89 percent in 2012). If we only consider the remaining product imports, imports from the UAE constitute a mere 3 percent of Pakistan”s imports from the world in 2012, which was 5 percent in 2006.